Tuesday, June 12, 2007

Congo reviews its wartime mineral contracts

The Democratic Republic of Congo (DRC) has launched a “fairness” review this week of 60 mining contracts signed during the last Congolese war of 1998-2003. With relative stability returned to the DRC, the mining industry is booming and metal prices are on the rise. However the government now believes that the terms and conditions of these contracts are unfair to the state and need revision. They have been supported by advocacy groups who say the contracts were signed without sufficient transparency and don't provide enough benefits to the local population. Big companies affected include the world’s largest miner BHP Billiton, the world's third-biggest gold producer AngloGold Ashanti, and U.S. major Phelps Dodge.

Mines Minister Martin Kabwelulu has launched a commission which will report to Prime Minister Antoine Gizenga in three months. Experts warn the task will much more daunting than the government realise and will take longer than expected. Carter Centre lawyer Peter Rosenblum is advising the commission and he believes it is a larger scale review than anything he has seen elsewhere.

The DRC suspended all negotiations on future mining deals in March pending the completion of the review. A two year UN Security Council investigation recommended the review of all wartime contracts. In 2003, the UN linked the war with exploitation of Congo’s resources saying that "illegal exploitation remains one of the main sources of funding for groups involved in perpetuating conflict."

After the war ended, the transitional government established a commission to look at the problem. Congolese lawmaker Christophe Lutundula headed the investigation, which came to be known as the Lutundula Commission. Its 50-page report showed how the DRC was often cheated by international mining companies. Private partners in joint ventures did not have to provide capital, which left the DRC carrying the debt. There was also a large smuggling culture with many minerals leaving the country unregistered, unrecorded and untaxed. The Lutundula report recommended many contracts should be renegotiated, or cancelled.

Congo holds one third of the world’s cobalt and one tenth of the world’s copper. It also has abundant reserves of gold, diamonds, tin, uranium and coltan. A group of NGOs launched an international appeal called "A Fair Share for Congo!" to ensure the profits of these minerals benefit the Congolese people. The rainbow group called on the new Congolese government and its international partners to "clarify and revise all mining contracts inherited from the past, set up an independent mechanism to monitor the implementation of contracts, and ensure transparent and fair management of mining resources”. The group said that after 30 years of dictatorship and more than 15 years of war and transition, the needs of the Congolese people are immense.

The most recent and more devastating of these wars left 4 million dead. But political tensions are now starting to ease. In December 2005, a nationwide referendum backed a UN-drafted constitution. The current government was elected in 2006 in first democratic polls in 40 years. Major problems remain to be solved. The DRC has one of the world's most dysfunctional economies, with a fragile government, little in the way of basic infrastructure and widespread poverty and desperation. Average income per person is less than $120 a year. There is still widespread conflict in the resource-rich border areas near Uganda and Rwanda. Corruption is widespread and there are few basic amenities.

But despite these daunting conditions and a World Bank warning that rates the DRC as the world’s worst country to do business, interest in mining in the country has soared since the election. Companies are prepared to take any risk to feed China’s apparently endless commodity boom. US company Phelps Dodge approved the building of a copper and cobalt mine in December 2006 at the provincial capital of Lubumbashi. This $600 million mine will yield 112 million kilos of copper a year with production starting as early as 2009. John Fenn, Phelps Dodge's senior vice president for Africa, acknowledges that doing business in the Congo is "especially challenging." But he adds, "the way you grow is you have to go after the resources."